Performance Management at Vitality Health Entreprises,Inc

Case Analysis

Human Resource Management

Performance Management at Vitality Health

Entreprises,Inc | 2

Group 09
Basamgari Mounica (2013PGPM14)
Anand Chaurasia (2013PGPM16)
Mathan Anto Marshine P (2013PGPM36)
Rachit Devendra Pradhan (2013PGPM39)
Soumya Choudhary (2013PGPM52)
IIM Indore - PGP, Mumbai ICSI - CCGRT, Navi Mumbai

Group 09

Human Resource Management

Performance Management at Vitality Health

Entreprises,Inc | 3

CONTENTS
Executive Summary

Problem Statement

Problem Analysis

Recommendations

Executive Summary
Group 09

Human Resource Management

Performance Management at Vitality Health

Entreprises,Inc | 4

Problem Statement

Problem Analysis
Vitality Health enterprises decided to roll out its new business strategy in face of
decreasing earnings in 2009.The focus was primarily on reviewing the current
performance management system and making it coherent to ensure increased
employee motivation and accountability.
Analysis of Old PMS System (Till 2009)

Group 09

Human Resource Management

Performance Management at Vitality Health

Entreprises,Inc | 5

Had 13 different rating levels (A-E and pluses and minuses) and managers
were asked to rate employees on the scale based on their individual
performance levels
Pay policy line was done on the following basis
Pay Policy Line = Base salary + (Job evaluation points * Increase per

point)
Job evaluation points were calculated on the basis of the level of the
accountability, technical
knowledge and problem solving skills
Individual Salaries were further modified by comparative ratio .This ratio
was defined as the employees current pay in comparison to the current
industry pay rate.
Problems with Old PMS System (Till 2009)
1. The top performing employees ended up getting similar grades to other less
productive employees leading to decreased motivation and frustration.
2. The comparative ratio technique used by the company led to consistently high
performers receiving smaller raises than their less productive colleagues. The
reason being the increase in comparative ratio kept decreasing on the
percentage basis as the employee climbed through the range.
3. The current compensation structure did not give much concern to the overall
performance since there was no bonus or alternative form of
reward/recognition. The benchmark compensation was set at 75th percentile
with regard to their compensation peer group which made actual compensation
figures go 7-8% higher than the competition. This ensured tenure of high salary
regardless of overall performance. As a result, it was difficult to identify and
reward top performers or terminate low performers and hence, the low
turnover experienced by the firm was among productive scientists and product
engineers.

Analysis of New PMS (Introduced in 2009)

New system replaced the earlier 13-point scale with a 5-point scale making it
easier to determine the category each employee fits into. This was brought to
replace the existing absolute ranking system by a relative ranking one wherein the
employees were evaluated with respect to the performance of their fellow
colleagues and the pre-determined standards for the respective job. The rankings
Group 09

Human Resource Management

Performance Management at Vitality Health

Entreprises,Inc | 6

were designed to be fit to a distribution in order to have a distinct picture of the

relative performances of all employees.

Incorporated performance based incentives in the compensation structure.

These included short and long term cash and equity bonuses and limited
stock options to senior managers and were aimed at retaining top talent.
Conducted reviews and announced results for all employees at the same
time of the year, thus ensuring better measurement of collaborative efforts
and reducing the impact of external factors on relative rankings.
Evaluation of employees on the basis of their performance in terms of
achieving specific goals identified for their respective jobs

Problems with New PMS (Reviewing done in 2011)

Due to the concept of relative ranking every team would have some top
achievers and some poor performers hence even if the team was performing
poorly, there would be some top achievers and even if a team performed
excellently there would still be some poor performers
Required a higher involvement of the managers but did not reward them
appropriately for it.
Compensation was very closely tied with performance review which resulted
in employees becoming more defensive and less open to coaching
Considered duties which were a part of their job description for the
performance evaluation hence the employees were unwilling to perform
duties outside the mentioned job description.
To play safe, Managers rotated higher rankings between their employees
from one year to the next either to avoid putting in too much of effort or to
avoid angering their team
Some managers submitted rankings which would fit the curve but told
employees that they had submitted something higher to maintain good
relations with employees
Some managers submitted uniform rankings to avoid differentiating
between their employees compelling HR department to change the rankings
to fit them to a distribution, further leading to inaccurate rankings.

Recommendations

Group 09

Human Resource Management

Group 09

Performance Management at Vitality Health

Entreprises,Inc | 7